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UPS shrinks buyback plan to use cash for TNT offer

UPS said it will shrink its planned share buybacks, freeing up cash for its plan to buy Dutch rival TNT Express.

The new plan from UPS will cut $2 billion from what UPS needs to borrow for the deal. Its original plan to borrow $3.8 billion for the deal had prompted ratings agencies to put UPS on watch for a possible downgrade.

UPS now plans to use $5 billion in cash plus $1.8 billion in debt for the $6.8 billion deal. Buying TNT will make UPS the biggest shipper in Europe, and it's the biggest acquisition UPS has ever made.

To pay for it, UPS has shelved its plan announced in September to buy back at least $8 billion of its stock through 2014. Instead, it said on Thursday it has authorized buybacks of up to $5 billion, including $1.5 billion this year and another $1.5 billion next year. The new buyback replaces a $10 billion repurchase authorized in 2008 that still had $1.9 billion remaining, UPS spokesman Norman Black said.

When companies buy back their own shares, remaining stock owners are left with a bigger piece of the company, increasing the value of their holdings. Buybacks can also be used to offset the effect of shares and options issued to compensate employees.

"UPS's legacy of financial strength allows us to complete the acquisition of TNT primarily using cash," while staying "committed to its policy of shareowner returns through dividends and share repurchases," Chairman and CEO Scott Davis said in a written statement.

UPS and TNT announced the deal on March 19 and it still needs approval by the European Regulatory Commission. UPS expects it to close in the third quarter.

The company also said it would pay a quarterly dividend of 57 cents per share on May 30 to shareholders of record May 14. The dividend is a 10 percent increase from its previous payout, the company said.